FALLING crime rates and fewer people being jailed for traffic offences are believed to be behind a historic drop in the state's prison population.

There has been an almost 7 per cent decrease in the number of prisoners in NSW jails between July 2009 and December last year, reversing an upward trend that had resulted in NSW managing the largest prison population in the country, a new report from the Bureau of Crime Statistics and Research shows.

The number of people jailed in NSW had exploded since the late 1990s, with a 65 per cent growth between 1998 and 2009. But between July 2009 and December last year, the number of prisoners dropped from 10,322 to 9626, or 6.7 per cent.

The director of the bureau, Don Weatherburn, said it was inevitable that with property-related crime, such as theft, decreasing in Australia, the number of prisoners would also fall.

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The report also cited shorter sentences or more non-custodial sentences as possible contributors.

Dr Weatherburn said it was possible courts had also become more lenient as crime rates fell.

''We've had 10 years of reduced crime, the hype and hysteria is fading somewhat and the courts are taking the view there's no need to lock people up as much as previously and for as long,'' he said.

In the year to March this year, crime rates were down for break and enter (15.7 per cent) and theft (7.3 per cent), compared with the year leading to March 2009.

A reduction in people being jailed for these crimes, along with assault and driving offences, accounted for 75 per cent of the drop in prison numbers.

The Attorney-General, Greg Smith, welcomed the drop in the crime rate, but said it was too early to fully understand all the causes for the reduction in prisoner numbers.

A spokeswoman said other likely factors included a reduction in people being imprisoned for traffic offences, down 31 per cent between June 2009 and last year, and the introduction of other sentencing options such as intensive corrections orders, which allow sentences to be served in the community.

''There are no targets for a reduction in inmate numbers, however, the government seeks to reduce reoffending and to reduce the number of inmates in custody for minor offences who do not pose a risk to the community,'' she said.

The number of people in jail for several more serious offences, such as homicide and sexual assault, was stable or rising between 2009 and last year.

Dr Weatherburn said the fall in prisoner numbers would deliver significant savings to the state. ''Each prisoner costs us about $270 a day,'' he said. ''The saving is substantial.''

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